The effects of drought are leading some cow/calf producers to reconsider marketing alternatives for their calves, said Mark Johnson, Oklahoma State University Extension Beef Cattle Breeding Specialist, in a letter to Extension agents called Cow-Calf Corner.
HIGHER PRICES COMING
Lower beef cow inventories now indicate higher value of calves, yearlings and fed cattle in the future, Johnson said. If producers traditionally have marketed weaned calves or yearlings and are considering retained ownership through finishing in order to be selling at a later endpoint (in a more favorable market), they should consider the following:
- Most fed cattle (about 75%) are sold with the price determined on a carcass value basis, he said. How does this work?
The pen of live finished cattle are harvested, carcasses are weighed, USDA yield and quality grades are assigned, Johnson said. Optimum combinations of quality and yield grades result in more dollar value per pound of carcass weight sold. Price docks occur if carcasses are too light or too heavy.
- Owning cattle through finishing comes with certain risks: death loss, health issues, market volatility and opportunity cost on the money the producer has invested until marketing, he said.
- The cost of gain through finishing will be higher than that of running calves on grass and turning them into yearlings, Johnson said. The same drought effects causing cow liquidation are affecting feed grain prices. Accordingly, feedlot costs of gain are expected to be higher in the foreseeable future.
- If the cow/calf producer historically sold weaned calves or yearlings, he needs to have the history on how his calves have fared long-term with respect to health, death loss, cost of gain, dressing percentage, finished weights, carcass quality and yield grades.
- When the producer buys bulls, what is his selection criteria? Johnson asked.
In general, post-weaning growth traits are moderate in heritability, while carcass traits are highly heritable, he said. If a producer has been putting selection pressure on carcass traits and/or post-weaning growth traits over the past five to 10 years and retaining his own females as cows, then retained ownership may be a way to capture additional profit from that genetic investment.
If he hasn’t, or doesn’t know the answers to question four, Johnson advised caution about deciding to retain ownership through finishing for the first time just because future market conditions look favorable.
CATTLE, BEEF RECAP
The USDA reported formula and contract base prices for live FOB steers and heifers this week ranged from $143.18 to $149.00 per cwt, compared with the last week’s range of $136.12 to $144.00. FOB dressed steers, and heifers went for $215.08 to $222.52 per cwt, versus $212.48 to $220.48.
The USDA choice cutout Thursday was up $0.05 per cwt at $264.39 while select was down $0.42 at $237.47. The choice/select spread widened to $26.92 from $26.45 with 116 loads of fabricated product and 16 loads of trimmings and grinds sold into the spot market.
The USDA said basis bids for corn from feeders in the Southern Plains were unchanged at $2.40 to $2.70 a bushel over the Sep futures and for southwest Kansas were unchanged at $0.10 over Sep, which settled at $6.19 3/4, up $0.04 3/4.
No contracts were tendered for delivery against the Aug live cattle contract Thursday.
The CME Feeder Cattle Index for the seven days ended Wednesday was $179.86 per cwt down $0.03. This compares with Thursday’s Aug contract settlement of $181.52, down $1.72.